Today, the Federal Open Market Committee voted 9-to-1 to leave the Fed Funds Rate unchanged within in its target range of 0.000-0.250 percent.

In its press release, the FOMC noted that since November’s meeting, the “economic recovery is continuing”, but at a pace deemed too slow to make a material impact on unemployment rates. It also said that household spending in increasing, but remains constrained by joblessness, tight credit and lower housing wealth.

In addition, the Fed used its press release to re-affirm its plan to keep the Fed Funds Rate near zero percent “for an extended period” while also opting to keep its $600 billion bond market support package in place.

And lastly, of particular interest to home buyers and mortgage rate shoppers, the FOMC statement devoted an entire paragraph to the Federal Reserve’s dual mandate of keeping inflation and employment at acceptable levels.

The Fed acknowledges making progress toward this goal, but calls it “disappointingly slow”. Currently, inflation is too low for what the Fed deems acceptable, and unemployment is too high.

Over time, the Fed expects both measurements to improve.

Mortgage market reaction to the FOMC statement has been negative thus far. Mortgage rates in Philadelphia are unchanged post-FOMC, but appear poised to worsen.

The FOMC’s next scheduled meeting is a 2-day affair, January 25-26, 2011. It’s the first scheduled meeting of 2011.

For today’s home buyers and homeowners that can manage the higher monthly payments, 15-year fixed rate mortgage rates look attractive as compared to comparable 30-year products.

The 15-year/30-year interest rate spread is near its 5-year high. As a result, the savings afforded by the 15 year mortgage is at its 5 year high also.

Despite lower rates, however, homeowners opting for a 15-year fixed mortgage should be prepared for its higher monthly payments. This is because the principal balance of a 15-year fixed is repaid in half the years as with a standard, 30-year amortizing product.

As compared to 30-year terms, 15-year products repay 3 times as much principal each month. It is this difference which makes the payment so much larger.

Versus a 30-year, 15-year fixed mortgages have a few downsides worth noting. The first is that, because 15-year mortgages are heavy on principal and light on interest, homeowners who itemize tax returns may have to claim a smaller mortgage interest tax deduction at tax time. Balanced against that of course, is the benefit of making much larger principal payments and retiring your debt earlier.

Another negative is that the sheer size of the payment. If you run into fiscal trouble down the road, the only way to reduce the monthly obligation is to refinance into a 30-year product and that costs money to do.

In other words, be sure you can manage the payments over the long-term before you opt for a 15-year term. If you can manage it, though, the rewards are tangible.

At today’s rates, a 15-year fixed and 30-year fixed costs $230 extra per $100,000 borrowed.

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The First Time Home Buyer’s Tax Credit has had a great impact on the housing market this year. In the industry we have watched the market get better every quarter this year, due in large part to the numbers of first time home buyers that came into the market to get their %8,000 tax credit. The question in the minds of the professionals across the country was whether or not the market would sustain itself without that credit. Because of the rising unemployemnt rates and the weak consumer confidence, there was a real concern that the stimulus was going to go away before the need for it had dissolved!

Two weeks ago I traveled to Washington DC, along with 48 other Realtors from across the country, to meet with members of Congress and discuss an extension of the First Time Home Buyer’s Tax Credit so that we could continue the positive impact it has had, and hopefully spur the economy as people bought paint, carpets, fixtures, furniture, and the thousands of other little things that are bought everytime a home sells. . The feedback from the congress was positive about the desire to extend, but there was hesitation from some of the memberswho wanted to make sure they knew where the money would come from to pay for the tax credit. With time running out for the existing tax credit ending November 30, 2009, I didn’t believe there was anyway this could get done before the deadline.

Boy was I wrong! Yesterday the Senate voted 98-0 to pass an extension until April 30, 2010. Today the House voted 412-12 to pass it. (I’ll let you know in a future blog who the 12 representatives were that voted against it) All we need is President Obama’s signature and we are good to go. That is expected to happen very quickly. In addition, they have modified the current criteria to increase the income limits and also include current homeowners. .

In real simple terms, here’s what we have:

1. First time buyers get the same $8,000 credit under the same terms
2. Current homeonwers may receive a $6,500 tax credit if they have lived in the same residence for at least 5 consecutive years in the last 8 years.
3. There are higher income limits to the program allowing more people to participate

There’s still more, but here’s a great chart that easily explains everything - but the bottom line is that buyer’s have until April 30, 2010 to find a home and enter into a contract that will settle prior to July1, 2010 – and hopefully by then the market will have corrected itself.  In any case, smart home buyers are going to be out to take advantage of this limited window of opportunity.  Or at least I think so – we’ll see how the market reacts over the next few months.

So the whole thing to learn here for me is that our government can be very quick to respond and move important legislation through. It makes me feel that our voice counts and reminds me that when there is an important issue we need to call, email or visit our elected officials, and get everyone you can, to do the same.  It sure worked this time!

Related articles by Zemanta

• Realtors group says pending home sales climb (latimesblogs.latimes.com)
• Homebuyer Tax Credit: Congress Gives New Buyers A $6,500 Break (huffingtonpost.com)
• #Realestate Housing bottom behind us, experts say (visionaryrealtynews.com)
• It’s (Almost) Official: Home Buyer Tax Credit Extended, Expanded (blogs.wsj.com)

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Congratulations! Your loan modification is almost done. Here are just a few tips to wrap up the process.

You’ll receive a loan modification packet from your bank that looks very similar to loan documents. Review them to ensure the following terms are what you agreed to:

• Interest rate
• Interest rate reset cap
• Term of modification (how many years)
• Monthly payment
• Good faith payment due
• New principal balance of your loan

If all of these are in good shape you’ll need to:

• Sign the documents in the presence of a notary
• File a copy for yourself
• Wire good faith payment funds to the bank via the wiring instructions they provide (they will not accept a personal check)

Once that’s all done your loan modification is complete. Congratulations! You made it.

Stay tuned to this blog for more great real estate, mortgage and loan modification advice. Thanks for reading and please share this series with friends and family who may need this help.

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If you’ve gotten this far, congratulations! It means you’ve been approved as a loan modification candidate and the bank has or will be making you an offer very soon. This post will cover some ways to negotiate with your lender to get the best possible modified terms for your new mortgage.

What to expect from your bank offer

If the bank does approve you for a home loan modification there are a few constants that you must be aware of:

• The bank will not write down the principal balance of your loan, they will adjust your interest rate to lower your payments, but you’ll still owe the same amount on your mortgage.
• The bank will not waive late payments. These will usually be added to your principal and tacked on the back of the loan.
• The bank will require a good faith payment ranging from one to two month’s mortgage payment as a sign of good faith that you’re committed to the mortgage.
• The bank will demand that you have the ability to afford a reasonable market interest rate as part of your modification. (You won’t be negotiating for 1% when the going rate for a 30-year fixed is 6.25%.)

What you can negotiate

• Interest rate. Your interest rate will typically be reduced between 2% and 4%. If you’re interest rate is currently 9% after an ARM adjustment, you can negotiate for a 6% 30-year loan fixed for 5-years no problem. You will have problems negotiating for a 3%. It’s not going to happen.
• Post-modification adjustment cap. After a fixed period (typically 5 years) your modification will expire and your rate will become adjustable again. You can negotiate the cap of your adjustment. Say if you agree to a 6% loan you can negotiate a cap at 8% or something similar to protect you from a similar reset disaster in the future.
• Good faith payment. Every bank will require a good faith payment of some sort to get caught up with delinquent payments before they go through with a loan modification. This is typically one to two months of mortgage payments. If you’re in a bind this may not be feasible. You can often negotiate this down to half a mortgage payment. Either way you’ll need to make some sort of payment – be prepared for that.

Take yourself out of the equation emotionally

Your home is an emotional asset. Your family lives there, it holds your memories, etc. Do not let you emotions get in the way of negotiating. Use these tips to be a better negotiator with the bank:

• Have a game plan. Have a hoped-for mortgage payment and interest rate so that you know what you’re negotiating for. Stick to your guns and be firm on the terms so you can get the best deal possible.
• Keep a calm demeanor and realize you’re working with another human who can either help you or make your life hell. Work to make them want to help you more.
• Be polite, yet assertive. If you don’t agree with something speak up and voice your objection. Be polite, but know what you want and stick to your guns.
• Appeal to people’s sense of fairness. Use terms like “doesn’t that seem fair?” or “isn’t that reasonable?” People have a hard time objecting to something that seems fair or reasonable.
• Get something if you’re asked to give something. Quid pro quo is fine here. If you’re asked to give something up (like a slightly higher monthly payment) then ask for something in return – a lower good faith payment, for example.
• Document everything. Don’t get stuck in a game of he said, she said. Write down offers so that you have a record of what’s on the table at any given time.
• Elevate to a decision-maker. Feel free to ask to speak to a manager or supervisor if you’re dissatisfied with your progress.

Negotiate to a point where you’re in the target range of your hoped for mortgage payment and interest rate and good faith payment. Once you’re there take the offer. No need to get greedy when your home is on the line. Next we’ll talk about wrapping up your loan modification.

Image by TheTruthAbout… via Flickr

So far we’ve discussed the basics as it relates to getting a loan modification. Now we’ll talk about a few tips that will help you qualify for a loan modification. These tips are centered around your hardship letter and the monthly expense worksheet.

The hardship letter

Called an LOE in the biz (letter of explanation) this letter is your explanation of why you believe you qualify for a home loan modification. Remember these facts when writing your hardship letter:

Banks want to work with people that:

• Are credit-worthy and have a good payment history
• Have been in their home for a long time
• That have been impacted by an unusual adverse event
• Have good potential to keep earning their current level of income
• Have good potential to pay back the mortgage
• Are likely not to go in to default after modification

Banks don’t want to work with people that:

• Have been chronically late in making mortgage payments
• Have lived in their home less than a year
• Are a poor credit risk
• Have lost their primary source of income
• Are likely to go in to default after modification

You want to write your hardship letter with these facts in mind. A good hardship letter includes:

• An explanation of the event that caused you to fall behind on your mortgage (or if you’re current why you’re requesting a modification). This should be positioned honestly as a one-time setback that is in the past.
• These can range from your adjustable rate mortgage resetting, to an illness now recovered, to a job loss that has been replaced by a new, stable and similar paying position. These are all one-time events that don’t impact your ability to pay a reduced amount moving forward.
• A statement of your desire to stay in the home and make paying the mortgage a priority.
• A statement of why your situation was temporary and one-time.
• A statement of why your situation is improving.

If you’d like a free hardship letter simply subscribe to Blown Mortgage’s Loan Modification Tips email list.

Be brief and to the point. We don’t need a novel, just a straightforward and accurate letter that states your willingness to stay in the home and the freak nature of the event that caused you to request a loan modification.

Monthly expense worksheet

Because your DTI is such a critical part of calculating whether you qualify or not, we want to be as high-level in our detail reporting to the bank. This means that we want to focus on big ticket items that we know will be consistent month-to-month and not the variable expenses that we can control through sacrifice and restraint.

Recommendations for your expense worksheet:

• Submit your own first. Let the lender ask for more detail. Your expense worksheet should include all items on your credit report and nothing else. Car, home, credit cards, student loans or second mortgages are the big ones.
• Variable expenses should be left off initially since it is impossible to predict the future and how your spending will change – it all comes down to the modification before you can accurately calculate that expense.
• If you are close to 50% call your credit card companies and ask for a reduction in your monthly payments. Even if you can save $40 per month on each card you could benefit with a lower DTI.
• Can you live without HBO? If you’re on the border look for ways to shave dollars off monthly expenses. While these won’t be in round one of our expense report it’s important to keep these in our back pocket for possible reductions.
• Double-check your expenses. Are you self-employed and pay for your car from your business? That doesn’t go on your expenses as it’s a business expense.

By preparing your own financial worksheet first you can save the time of filling out the lender’s which is often more detailed and time consuming and present your application quickly to the lender. If the processor accepts your application as is you’ve gained valuable time. If they request one of their own then you’ll have the information already collected. However; by preparing a detailed and accurate monthly expense worksheet that focuses on the items on your credit report and grouped in high-level buckets you’ll make it easy for the bank to see your financial snapshot and determine whether you’re a good candidate for modification.

With all the demand for modifications, making the bank’s life easy goes a long way. Remember these are just people swamped with work and in a demanding job where they have to say “no” a lot. Give them a reason to enjoy working on your file by being organized, efficient and together and you’ll get better treatment than someone who is difficult, disorganized and non-responsive. In the next post we’ll discuss negotiating your modification terms.

Image by TheTruthAbout… via Flickr

So far we’ve discussed the basics as it relates to getting a loan modification. Now we’ll talk about a few tips that will help you qualify for a loan modification. These tips are centered around your hardship letter and the monthly expense worksheet.

The hardship letter

Called an LOE in the biz (letter of explanation) this letter is your explanation of why you believe you qualify for a home loan modification. Remember these facts when writing your hardship letter:

Banks want to work with people that:

• Are credit-worthy and have a good payment history
• Have been in their home for a long time
• That have been impacted by an unusual adverse event
• Have good potential to keep earning their current level of income
• Have good potential to pay back the mortgage
• Are likely not to go in to default after modification

Banks don’t want to work with people that:

• Have been chronically late in making mortgage payments
• Have lived in their home less than a year
• Are a poor credit risk
• Have lost their primary source of income
• Are likely to go in to default after modification

You want to write your hardship letter with these facts in mind. A good hardship letter includes:

• An explanation of the event that caused you to fall behind on your mortgage (or if you’re current why you’re requesting a modification). This should be positioned honestly as a one-time setback that is in the past.
• These can range from your adjustable rate mortgage resetting, to an illness now recovered, to a job loss that has been replaced by a new, stable and similar paying position. These are all one-time events that don’t impact your ability to pay a reduced amount moving forward.
• A statement of your desire to stay in the home and make paying the mortgage a priority.
• A statement of why your situation was temporary and one-time.
• A statement of why your situation is improving.

If you’d like a free hardship letter simply subscribe to Blown Mortgage’s Loan Modification Tips email list.

Be brief and to the point. We don’t need a novel, just a straightforward and accurate letter that states your willingness to stay in the home and the freak nature of the event that caused you to request a loan modification.

Monthly expense worksheet

Because your DTI is such a critical part of calculating whether you qualify or not, we want to be as high-level in our detail reporting to the bank. This means that we want to focus on big ticket items that we know will be consistent month-to-month and not the variable expenses that we can control through sacrifice and restraint.

Recommendations for your expense worksheet:

• Submit your own first. Let the lender ask for more detail. Your expense worksheet should include all items on your credit report and nothing else. Car, home, credit cards, student loans or second mortgages are the big ones.
• Variable expenses should be left off initially since it is impossible to predict the future and how your spending will change – it all comes down to the modification before you can accurately calculate that expense.
• If you are close to 50% call your credit card companies and ask for a reduction in your monthly payments. Even if you can save $40 per month on each card you could benefit with a lower DTI.
• Can you live without HBO? If you’re on the border look for ways to shave dollars off monthly expenses. While these won’t be in round one of our expense report it’s important to keep these in our back pocket for possible reductions.
• Double-check your expenses. Are you self-employed and pay for your car from your business? That doesn’t go on your expenses as it’s a business expense.

By preparing your own financial worksheet first you can save the time of filling out the lender’s which is often more detailed and time consuming and present your application quickly to the lender. If the processor accepts your application as is you’ve gained valuable time. If they request one of their own then you’ll have the information already collected. However; by preparing a detailed and accurate monthly expense worksheet that focuses on the items on your credit report and grouped in high-level buckets you’ll make it easy for the bank to see your financial snapshot and determine whether you’re a good candidate for modification.

With all the demand for modifications, making the bank’s life easy goes a long way. Remember these are just people swamped with work and in a demanding job where they have to say “no” a lot. Give them a reason to enjoy working on your file by being organized, efficient and together and you’ll get better treatment than someone who is difficult, disorganized and non-responsive. In the next post we’ll discuss negotiating your modification terms.

Image by taberandrew via Flickr

So far in this series we’ve talked about the process of loan modifications, how to get started and how to collect the information you need to accurately complete your monthly expense worksheet. The monthly expense worksheet is going to be used by your lender to determine if you qualify for a loan modification or not. Therefore this is an extremely important step that must be taken with care. Once you submit your monthly expense worksheet it becomes part of your file and is very hard to change it once submitted. Take your time and make sure it is correct!

Tip: Never lie on your monthly expense worksheet. Loan fraud is a federal crime. Knowingly submitting false information will jeopardize your modification application and may subject you to legal action from your lender.

Understanding debt to income ratio (DTI)

Debt-to-income (DTI) is the key determinant in most lending situations. In a traditional home loan the DTI plus the loan to value (LTV) play roles; but in a modification it is assumed that the LTV is negative (you are upside down on your home and unable to refinance) so the key decision factor is DTI (along with your credit worthiness as demonstrated by your monthly payment history and credit report).

DTI is calculated as follows:

Total Monthly Expenses / Total Gross Income

For example if your gross monthly income is $5,000 per month (you make $60,000 per year) and your monthly expenses are $3,000 then your DTI is:

$3,000 / $5,000 = 60%

Understanding gross monthly income

Before we can accurately calculate your DTI we need to accurately calculate your gross monthly income. Gross means the dollar amount you earn before deductions such as state and federal taxes, health insurance, 401(k) and FSA contributions.

If you are a salaried employee this is relatively easy to determine. Take your yearly salary and divide by 12. This number is your gross monthly income. If you make $60,000 per year, your gross monthly income is $5,000.

Tip: Many salaried people are paid every two weeks, not twice a month. Being paid every two weeks means you receive 26 paychecks instead of 24 (bi-monthly checks). If you take your last two paychecks and add them up before deductions you have short-changed yourself in calculating your DTI. Double-check with your employer to see if you get 26 or 24 paychecks in a year, or better, use the method described above to get your gross monthly income.

If you are paid by the hour this becomes a bit more difficult. First, you cannot count overtime pay towards your gross monthly income. Even if you’re a California-state prison guard who has been working overtime for 5 years in a row, you still have to use your base hourly income to qualify.

Take the last two-months paychecks (4) and add up the hours (except for overtime). Divide by 2. That is your average monthly hours worked. Take that hour amount and multiply it by your hourly wage. If you worked an average of 160 hours per month (40 per week) and make $20 per hour you make $3,200 per month gross income.

Tip: Including overtime is one of the biggest reasons loan modifications get rejected for hourly workers. Don’t include it in your monthly calculation. The bank won’t count it and calculating your DTI including overtime will throw off your calculation.

If you receive social security or long-term disability you may be able to “gross up” you benefits. Because social security is not taxed banks often add 25% to the value of your monthly benefit to more accurately represent the value of this money. Be sure to ask your bank if they “gross up” social security before doing the calculation with “grossed up” social security.

How to “gross up” social security:

$1,000 monthly social security benefit x 1.25 = $1,250 grossed up benefit for DTI calculation

Tip: Most banks gross up these benefits, but we always recommend asking your representative in the loss mitigation department if they gross up social security in their underwriting to ensure that you’re making an accurate calculation.

Target debt to income ratio

The target debt to income ratio that you’re looking to achieve is 50%. That means that your total monthly expenses including your mortgage comprise only half of your gross monthly income. If you make $5,000 per month ($60k/annually) your monthly expenses can’t be more than $2,500.

In reality, if you’re considering a loan modification, it is likely that your monthly debt to income ratio is closer to 100% or worse. The modification is going to help that, and we have to figure out what that will do to the ratio first.

Calculating a reduced mortgage payment

This step gives you an idea of what you’ll negotiate for when you submit your package to the bank. Use an online mortgage calculator (there’s a good one at bankrate.com: http://www.bankrate.com/brm/mortgage-calculator.asp but anyone will do) to play around with different loan modification scenarios.

Tip: Banks will typically not reduce your principal owed, and rather adjust the interest rate to reduce your payments. They will typically reduce them between 2-4%. If you qualify for the new Making Home Affordable federal modification program you may be eligible for an even greater reduction. We will talk more about that program in future posts.

Example mortgage calculation

Say you have a $165,000 mortgage that recently adjusted from 5.25% to 9.25%. Your situation would look like this:

Loan amount: $165,000

Term: 30-years

Interest rate: 5.25%

Monthly payment: $911.14

After adjustment

Loan amount: $165,000

Term: 30-years

Interest rate: 9.25%

Monthly payment: $1357.41

Lets say that you’re still making that $60,000 per year and that you had total monthly expenses (not counting your mortgage) of $1,800 per month.

Your DTI prior to adjustment:

$1,800 + $911.14 = $2,711.14 / $5,000 = 54.23%

Your DTI after adjustment:

$1,800 + $1,357.41 = $3,157.41 / $5,000 = 63.15%

Now the target DTI is 50%. Some banks vary and it’s very hard to get them to tell you exactly what they’ll accept; but industry standard is 50%. They’ll sometimes accept higher; but if you’re not near the 50% mark you’ll often not qualify for a modification.

So what can we do to get down to a 50% DTI in the above example?

Well we can request a modification of our mortgage back to the original 5.25%?

That would give us a monthly mortgage payment of $911.14 and a debt to income ratio of 54.23%. That’s not quite at 50% and ideally we want to be under 50%. So what else can we do?

We can:

• Double check our expenses for items that shouldn’t be included (such as work-related expenses)
• Call our credit card companies and ask for a reduction in monthly payments
• Reduce our utility bills by cancelling premium cable subscriptions, opting in to programs that reduce utility bills in exchange for power-flexibility in the summer, switching to a smaller trash can size, etc.
• Exclude expenses like eating out, food, clothes and discretionary expenses from your DTI

Because your monthly expenses can fluctuate quite a bit each month you want to focus on big ticket items and not rack up lots of little dings.

What if we:

• Saved $300/month by not eating out
• Cancelled a gym membership worth $100/month
• Reduced our utilities by $50/month

That would give us a DTI of: 45.22% – bingo. That’s the number we want to work with.

So when we complete our monthly expense worksheet we’re going to report the big ticket items that are always there, but we’re going to leave off for now the variable items that we can control, such as food, etc.

If they ask for it later we’ll give it to them; but for now we want to present a case that with a new “hoped for” mortgage amount (the modified rate and monthly payment) plus our monthly expenses that we’re a good candidate for a mortgage at under 50%.

Tip: Never lie to your bank. What we’re doing here is making an assumption that we can control variable monthly expenses through good judgment and sacrifice in order to keep our home. If we must present this information we will.

In the next article we’ll talk about tips for qualifying for a loan modification.

Image by TheTruthAbout… via Flickr

Once you’ve received your loan modification application from your lender it’s time to do your home work. What do we mean by “your homework?” We mean simply the collecting and ascertaining of your income and expenses in order to successfully complete your loan modification application.

In brief – think back to the documentation you needed to apply for your loan, you’ll need essentially that information in order to complete your loan modification application.

A typical loan modification financial worksheet will request the following information:

• Contact Information
• Property information including estimated value
• Current monthly income
• Additional income (not wages) such as social security, child support, welfare, etc.
• Estimated value of all assets
• Home
• Other real estate
• Checking accounts
• Savings
• IRAs
• 401(k) accounts
• Stocks, Bonds, CDs
• Auto 1, Auto 2, Boats, RVs, etc.
• Other investments
• Liabilities (monthly payments and balance owed)
• Alimony – Child support
• Dependent care / child care / tuition
• Cable /cell phone
• Other mortgage(s) / rent
• Personal loan(s) / credit cards
• Medical expenses
• HOA fees / taxes / insurance
• Automobiles
• Tax liens
• Utilities
• Auto expense (gas / maintenance)

Collect the following:

• Two most-recent months paystubs for you and your spouse (if you both work)
• Three months bank statements for your primary checking and savings accounts
• Last year’s W2 or 1099s
• Most recent statement for any other types of income – social security, disability, etc.
• Most recent mortgage statement
• Most recent home equity line statement or 2^nd mortgage as appropriate
• Most recent credit card statements
• Most recent student loan statements
• Most recent car loan statement(s)
• Most recent home owners’ association statement as applicable
• Most recent statement for other debts as applicable

Keep all of this information in your notebook or a separate folder. You’ll be using this information a lot so keep it handy.

Now, we need to get a sense of your monthly expenses that aren’t a part of the above debts. Using either your past banks statements or your best accounting, estimate the following monthly expenses:

• Food costs (dining in and eating out)
• Clothing costs (per person)
• Utilities cost (including phone, cable, electricity, water, gas, trash and cell phones)
• Daycare or private school costs
• Assisted living costs
• Health insurance costs not automatically deducted out of your paycheck
• Gym memberships or other membership charges

Once you’ve collected all of that information it’s time to complete your monthly expense worksheet. This monthly expense worksheet is going to determine your debt-to-income ratio. This is the single most important item in determining your eligibility in getting a loan modification.

Tip: It’s never recommended to try to calculate this information while on the phone with a bank representative. It is too important to do off the top of your head. Set aside some time to sit down with some quiet time with you and your spouse and go through the numbers carefully.

In the next post in the series we’ll go in to qualifying for a loan modification. For now, if you’d like a sample monthly expense worksheet you can download one for free by joining Blown Mortgage’s Loan Modification Tips mailing list.

Image by TheTruthAbout… via Flickr

Getting Started with a Loan Modification

The mortgage payments are soaring because your ARM reset, or your income was cut in half, or two-thirds, or completely by a recent layoff. The bills are piling up and the savings is disappearing quickly. You need relief, and you’ve heard a lot about loan modifications as part of the way out of your financial train wreck. You’re not alone, millions of Americans face foreclosure every day and the specter of losing a home is one of the most emotionally and mentally grueling challenge a family can face. The first thing to getting started with a loan modification is: to pick up the phone.

Astonishingly, in more than 50% of homes that go in to foreclosure the homeowner never picks up the phone to talk to the lender. This seems counter-intuitive, but in reality, makes perfect sense. Too many homeowners feel helpless and give up before they even try. To get a loan modification your first step is to try – to pick up the phone.

Who to call to start a loan modification

Find your statement for your first mortgage and call the customer service number. Get to a customer service representative as fast as you can.

TIP: Note this sequence down in a notebook. The notebook that you’re going to dedicate to tracking your efforts to get your loan modified. Keeping the keystroke sequence (e.g. 1,1,5,0) will allow you to bypass the automated menus and get you to people faster. Since you’ll be spending a lot of time on the phone this will come in handy. Trust me.

Once you have a customer service rep on the phone ask the representative to transfer you to the “loss mitigation department.” This is the department that you’ll be working with on your loan modification. Before you are transferred ask for the direct number to the department. You guessed it. Jot that number down in your notebook.

You’ll be greeted by another low-level rep in the loss mitigation department. These low level reps handle inbound calls and try to vet the calls to find people who have a chance at qualifying for a mortgage. What you want to tell them is that you’re facing “imminent default” due to a change in your financial situation and that you need to get an application for a loan modification faxed or emailed to you immediately.

TIP: Note that the rep is going to try to get as much information out of you as possible upfront, including perhaps, your monthly income and expenses. Defer answering these questions by saying “I don’t have that information handy.” DO NOT provide estimates or guess. These reps are trying to get a quick calculation on your debt-to-income ratio (which we’ll address later) to see if you make the cut. Do not play roulette with your loan modification chances by answering these off the top of your head. Ask for the application and say you’ll fill out your financial information on the application.

TIP: Get the name of the rep and their EXACT extension number. If they resist be persistent. You’ll speed your process by working with someone specific as opposed to going in to the call round-robin each time. YES. You’re putting that information name, phone extension, time and date called, notes of the conversation in to your notebook.

If you don’t get the application shortly follow up with the person. You’ll be doing a lot of following up so not to worry. Just be pleasant and persistent. Remember that loan modification departments are swamped right now and the people on the other end of the phone are just that – people. By remembering that you’ll be able to effectively move through the process in the most beneficial manner possible.

Got the loan modification application? Great! Get ready for step two. Doing your homework.